Risk Management Tools

When it comes to making decisions for orchardmanagement, it’s no longer a simple matter ofremoving a McIntosh block and replacing itwith Honeycrisp. Growers need answers to questions suchas: How much will planting density influence profit? Can Isave money by incorporating new technology such as a platform?Is the sprayer I already own sufficient?

AgTools, a group of three computer-based risk management tools designed to assist growers in making business decisions, can help answer those questions. AgTools was developed through a specialty crop research initiative grant and is a collaborative effort of researchers from Oregon State University, Washington State University, the University of Arizona, the University of Idaho and the University of California, Davis.

“The backbone of the system is AgProfit,” said James Julian, faculty research assistant, Oregon State University. “It allows us to evaluate profitability and financial feasibility of various enterprises.”

AgProfit differs from other cost studies because it accounts for the time value of money. Users can inflate returns and costs over time to answer the question “Can I make money doing this, and can I afford it based on this scenario?” Templates developed through direct work with growers provide nearly every possible production activity.

“It’s a net present value calculator made simple with two aspects: profitability and feasibility,” said Julian. “Will the block you want to put in be profitable, and what resources will it take to succeed? If you run out of money before the system is sustainable, the system is going to crash.”

Using AgProfit, growers can look at short, medium and long-term investment situations based on enterprise budgets. A long-term decision (10-plus years) might compare planting a block of apples versus using the same acreage for cherries. A medium-term decision (up to 10 years) might consider decisions about practices such as drip irrigation or the use of automated platforms to eliminate ladders. A short-term decision (one to two years) might include measures that enhance fruit quality.

Another component of AgTools is AgLease, which allows both the grower-as-tenant and the landowner to evaluate the crop share or cash rent basis of a long-term lease up to 40 years. Budget enterprises help both the tenant and landowner establish a fair agreement for annual, perennial or combination crops.

AgFinance, the third component, combines the scenarios developed in AgProfit and AgLease for a composite that represents the farm operation. AgFinance will allow the grower to see how changes to one block (or many) will affect whole-farm sustainability in the future.

Clark Seavert, professor in the department of agricultural and resource economics at Oregon State University, says that AgTools is a great way to use information to compare cropping systems, technologies and small incremental adjustments to a particular block or an acre.

“Everyone talks about sustainability in terms of environmental aspects,” said Seavert. “They haven’t really talked about the financial aspects of sustainability. I think we can use AgProfit and AgLease to help analyze the whole farm situation. We spend a lot of time thinking about new crops we can plant, but what does that do on the other end? With AgFinance, you can take all of the costs, returns and inflation, run it through the program, and see how that impacts financial and environmental sustainability.”

Options within AgFinance will allow the grower to predict the feasibility of value-added products, the results of changing cropping systems, evaluation of various market strategies and numerous other outcomes.

AgTools risk management tools are available free of charge to users in the U.S. via the AgTools website at www.agtools.org/home.php. A self-guided training program for each of the three components is also available online.

The author is a new contributor and freelance writer who farms and raises Great Pyrenees in south-central Pennsylvania. Comment or question? Visit www.farmingforumsite.com and join in the discussions.

About the AuthorSally Colby

Sally Colby is a frequent contributor and freelance writer who farms and raises Great Pyrenees in south-central Pennsylvania. Comment or question? Visit http://www.farmingforumsite.comand join in the discussions.